Public-Private Partnerships and AML Compliance
Money laundering, terrorism, and financial crime are serious global threats that affect all financial institutions. As criminals and terrorists become increasingly adept in their unlawful pursuits, financial institutions, as well as government agencies and regulatory authorities must likewise develop new techniques to prevent the abuse of the financial system. Successfully combating these risks necessitates coordinated and collaborative efforts through arrangements known as public-private partnerships (PPPs).
In fact, the Wolfberg Group views PPPs, arrangements that involve the engagement of financial institutions with the public sector, as a key element of an effective Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) program.
What Are Public-Private Partnerships?
Public-private partnerships, or PPPs (sometimes also referred to as 3P or P3), are strategic arrangements made between private sector institutions and government agencies, such as law enforcement and regulatory authorities. These partnerships can be contractual, corporate, or collaborative in nature and the role played by public and private sector organizations can be flexible to meet specific requirements. PPPs provide opportunities for FIs to collaborate with public sector stakeholders in identifying and addressing financial crime risks. PPPs can improve analysis, investigation, and prosecution of financial crimes, thus benefiting both private parties and their governments.
Compliance Benefits of PPPs
One example in which PPPs can be utilized to support AML/CFT efforts involves suspicious activity report (SAR) filings. Financial institutions spend billions of dollars to file millions of SARs annually. However, only a small number of SARs provide useful information to law enforcement. Thus, the SAR process is costly, burdensome, and hugely inefficient. This is largely because FIs do not seek, and law enforcement does not provide, feedback on the value of the information contained in SAR filings.
Michael Messier, Senior Advisor at Global Compliance & Strategic Solutions LLC, summarized the gap between the public and private sectors succinctly in the following statement:
“There is a gap. The public sector, primarily law enforcement, targets the threat—individual or organization, while the finance sector works to protect the ‘financial rails’ from being used to support criminal and terrorist activity. Operations are happening in silos, resulting in a misallocation and inefficient use of resources. Banks often don’t understand how law enforcement builds a case; law enforcement doesn’t understand the role of banks.”
However, when designed to link strategy, approach, and execution, anti-financial crime public-private partnerships can be an integral part of an effective AML/CFT program, facilitating the exchange of relevant information and enhancing financial crime intelligence and analysis to combat financial crime. The bilateral relationships formed through PPPs facilitate knowledge-sharing for both sectors.
More specifically, FIs are in a unique position to identify customers and activities that are likely to pose money laundering and terrorism financing risks. PPPs provide useful information about suspicious financial transactions to law enforcement. PPPs also serve to develop intelligence about new and evolving threats. In this manner, FIs can enhance the quality of the SARs they file, which in turn provides the government with better data to support their investigations.
In addition to better quality and timeliness of suspicious activity reporting, other benefits of PPPs include:
- The ability to prioritize threats
- More timely investigations
- Increased responsiveness
- Heightened risk awareness
- Better understanding of complex financial issues and their vulnerabilities to abuse
Furthermore, FIs that participate in PPPs may be able to:
- Minimize their risk of an enforcement action
- Increase their AML compliance cost efficiencies
- Avoid reputational damage associated with money laundering violations
From a public sector perspective, public-private partnerships enable organizations to better understand what the private sector experiences and subsequently inform policy and the enactment of laws. From a private sector perspective, PPPs offer regulators an opportunity to explain the application and reasoning behind certain policies. By leveraging PPPs, the public sector can improve their understanding of complex financial issues or services and their respective vulnerabilities, enabling them to pre-empt criminal activity and introduce proactive measures to support the private sector.
Formalized AML Public-Private Partnerships
In recent years, several countries have established formal PPPs, including the US, UK, Canada, Australia, Germany, Singapore, and others. These partnerships are all designed to mobilize intelligence from across the public and private sectors to tackle economic crime more effectively.
In the US, the FinCEN Exchange is one such formal AML PPP established to facilitate voluntary information-sharing between law enforcement agencies, national security agencies, financial institutions, and the US Treasury’s Financial Crime Enforcement Network (FinCEN).
FinCEN Exchange is an invitation-based program whereby invited FIs are encouraged to register under the USA PATRIOT Act Section 314(b) and to share information voluntarily with other authorized FIs, as appropriate. In this program, FinCEN, in close coordination with law enforcement, provides participating FIs with actionable typologies and other specific information to help them identify illicit activity. According to FinCEN’s website, the “objective of FinCEN Exchange is to develop, deliver, and sustain innovative public-private information sharing in order to enable the private sector to better identify risks and provide FinCEN and law enforcement with critical information to disrupt money laundering, terrorism financing, and other financial crimes.”
The goals of FinCEN Exchange, which are typical of anti-financial crime PPPs generally, include:
- Enhancing communication, collaboration, and partnerships among regulatory agencies, law enforcement, and financial institutions
- Supporting national security and anti-financial crime investigations and policies
- Improving the utility of suspicious activity reports and sharing feedback with the private sector
- Focusing on high-value and high-impact activities
- Conducting proactive outreach to better prioritize industry efforts and utilize resources
Building Effective PPPs
The Wolfsberg Group urges the public sector to prioritize the establishment and strengthening of public-private partnerships and encourages FIs to participate actively in information-sharing frameworks to foster a more effective AML/CTF regime. To meet this objective, the Wolfsberg Group has identified the following key elements for successful public-private collaboration:
- Active participation and sponsorship from public sector figures
- Established structure and membership with regular meetings
- Inclusive and multi-disciplinary membership
- Focus on sharing actionable information
- Support by a legal framework for information-sharing
- Multi-directional information sharing
- Mechanisms to track impact and identify areas for improvements
Practical PPP Tips and other Considerations for FIs
Even if a bank or other FI cannot participate in a formal PPP, such as the FinCEN Exchange, there are several measures it can implement to avail itself of the advantages a PPP provides and enhance the overall effectiveness of its AML/CFT program. FIs should consider the following actions when engaging with governments, other private institutions, or simply within their own organization, to improve financial crime compliance:
- Stay on top of the latest anti-financial crime trends, practices, and guidance in your industry, including the most current financial crime typologies
- Benchmark against peer institutions to assess and compare your organization’s AML/CFT program and strive for continuous improvement
- Prioritize the most significant threats to your organization and allocate resources accordingly
- Test and re-test frequently to timely identify gaps, issues of concern, and opportunities for improvement, and promptly address them. Be willing and prepared to redefine strategy to correct deficiencies, refine policies, protocols, and procedures, or re-tune transaction monitoring systems
- Actively and routinely communicate with your regulatory authority, understand regulatory expectations, and be an active participant in AML examinations and audits
- Share and solicit relevant information in a timely manner and as widely as appropriate, including internally, across the organization, with peer institutions, government agencies, regulatory bodies, and any other stakeholders
Raising awareness among political leaders, regulatory authorities, the private sector, other stakeholders, and even within an organization, is a key element in the fight against financial crime and other illicit activities. Given the cross-border nature of financial crime, solutions need to be global.
Financial intelligence sharing, including collaboration and dialogue, lead to far better outcomes than initiatives pursued in isolation. The sharing of specific risks and actionable information, as well as active communication between the private and public sectors enables a more targeted, and informed approach to risk-management and helps to protect the financial system and the public.
Participation in a PPP can provide banks and other FIs with numerous benefits and significant advantages, including increasing efficiencies in its AML investigatory and reporting functions. To learn more about leveraging effective public-private partnerships for your organization and how you can bring your AML/CFT program to the next level, contact Alessa today.